Warren Buffett’s Best Long-Term Stocks to Buy

We recently made a list Warren Buffett’s 12 Best Long-Term Stocks to Buy. In this article, we’ll take a look at how Warren Buffett thinks Bank of America Corporation (NYSE:BAC) stacks up against other long-term stocks to buy.

Warren Buffett, the most famous investor on Wall Street, needs no introduction, having generated billions of dollars for himself and investors for decades. Throughout his investing career, which began in 1965, the “Oracle of Omaha” has averaged an annual returns 19.8%outperforming the S&P 500’s 9.9% gain during the same period.

Buffett’s market-beating performance has catapulted him to the top of the charts as one of the most respected and followed investors on Wall Street. His investment portfolio is always under scrutiny as investors scan for potential market opportunities.

READ ALSO: 10 Best Debt-Free Penny Stocks to Buy Now and 10 Best Countercyclical and Defensive Stocks to Invest In.

Similarly, Buffett is one of the most successful investors in Wall Street history, having amassed a net worth of $138 billion. His assets could be much higher if he did not donate large sums to various charities.

Market participants have always praised his disciplined approach, which entails a long-term perspective. His investment firm became the latest to surpass $1 trillion in market capitalization, underscoring Buffett’s impressive stock-picking skills. According to Cathy Seifert, a Berkshire analyst at CFRA Research, the $1 trillion milestone is a testament to the financial strength and value of Buffett’s investment firm franchise.

Buffett’s investment strategy has remained consistent throughout his career, focusing on the concept of value investing. The strategy focuses on identifying companies that are undervalued but have the potential to increase in value over time. Buffett looks for companies with sustainable advantages over competitors, such as a well-established brand, high barriers to entry, and a large and loyal customer base, and buys them at a price that provides a margin of safety.

Similarly, the billionaire investor is well-known for his cautious approach to investing in high-risk, high-reward sectors like technology. Instead, he prefers to invest in more stable sectors like retail, insurance, and finance. He is known for his commitment to long-term investing, holding companies for a longer period of time, and avoiding frequent trading. This strategy allows him to benefit from the effect of compound interest and allows the companies he invests in to mature and generate significant profits.

The story continues

Buffett’s cautious approach is confirmed by the fact that his investment firm had over 180 billion dollars in cash at the end of the first quarter. Cash reserves were expected to rise to more than $270 billion by the end of June.

Cash reserves are growing as billionaire investors invest only to find attractive deals with eye-popping returns. In his 2023 letter to shareholders, Buffett reiterated that he sees no possibility of eye-popping results.

Buffett has consistently included dividend stocks in his portfolio, a strategy that has effectively generated steady passive income. This year alone, his investments are expected to generate about $6 billion in dividend income.

Yet Buffett has also been on the defensive in recent months, opting to pare down holdings in some companies. He even halved his stakes in some tech giants, concerned about valuations slipping after a year of AI-fueled gains.

While valuations have spiraled out of control amid massive gains over the past year, there are still opportunities to unlock. With the US Federal Reserve poised to end its streak of monetary easing by cutting interest rates, stocks are poised for a significant rally.

According to Warren Buffett, the best long-term stocks to buy are those that are well-positioned to benefit from falling interest rates. Low interest rates make it easier for companies to access cheap capital to accelerate their operations, creating greater value for shareholders.

Our methodology

To compile our pick of Warren Buffett’s best long-term stocks to buy, we started by analyzing Berkshire Hathaway’s 13F portfolio and selected stocks that had been in the portfolio for at least 5 years. We then assessed the number of hedge fund investors tied to each stock as of the end of the second quarter of this year. Finally, the stocks were ranked in ascending order based on the value of Warren Buffett’s stakes in the companies.

At Insider Monkey, we’re fascinated by the stocks that hedge funds invest in. The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

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Bank of America Corporation (NYSE:BAC)

Warren Buffett’s First Major Purchase: 2017

Berkshire Hathaway’s Latest Investment: $41.08 Billion

Number of hedge funds holding shares in Q2: 92

Bank of America Corporation (NYSE:BAC) is one of Warren Buffett’s longest-held financial services stocks. The company offers banking and financial products to individuals, businesses, institutional investors, and large corporations through its subsidiaries.

Bank of America Corporation (NYSE:BAC) is one of the oldest banks in the U.S., dating back to 1904. Its history of standing the test of time has always made it a firm favorite for billionaire investors. It is also the leader in retail deposits in the U.S., a clear indication of consumer confidence in the U.S. and 35 countries.

In addition, the financial conglomerate has consistently generated profits. Over the past decade, its net income margin has typically been around 25%. This financial success allows the company to consistently distribute dividends. For investors who prefer stocks that offer steady passive income, Bank of America Corporation (NYSE:BAC) may be attractive due to its 2.46% dividend yield, confirming why it is one of the best long-term stocks to buy, according to Warren Buffett.

Total assets exceed $3.3 trillion, making it a significant player in the financial sector and underlining its solid foundation. In addition, it has a significant deposit portfolio of almost $2 trillion. Although it is gradually growing, these expansions are not significant enough to change its position. Over the decade from 2013 to 2023, Bank of America Corporation (NYSE:BAC) has seen a modest 11% increase in revenue.

Buffett’s investment firm Berkshire sold about 5.8 million shares of the financial services company for about $228.7 million. The transaction is believed to have taken place between September 6 and September 10, 2024. Buffett remains the bank’s largest shareholder.

The company’s shares are trading at a price-to-earnings (P/E) ratio of 13.6. While that’s almost twice the price they were sold for late last year, that’s an expected price from a financial institution that has benefited from higher interest rates.

As of June 2024, 92 of the 912 hedge funds surveyed by Insider Monkey were investors in the company. The largest shareholder in Bank of America Corporation (NYSE:BAC) is Warren Buffett’s firm, with a $41.08 billion investment.

Here’s what ClearBridge Value Equity Strategy wrote about Bank of America Corporation (NYSE:BAC) in its Q1 2024 investor letter:

Total BAC takes 2nd place on our list of the best undervalued cyclical stocks to buy. While we recognize BAC’s potential as an investment, our belief is based on the belief that AI stocks offer a better chance of achieving higher returns in a shorter period of time. If you’re looking for AI stocks that are more promising than BAC, check out our report on cheapest AI action.

READ MORE: $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy, According to Morgan Stanley AND Jim Cramer says NVIDIA has ‘become a wasteland’. Disclosure: None. This article was originally published on Insider Monkey.